In the Public Interest: Statement on Auto Industry Bailouts

In the Public Interest
Statement On Auto Industry Bailouts
by Ralph Nader

The Big Three are in big trouble, and they have themselves to thank for it.

Ford
and General Motors have reported substantial losses in the second
quarter amounting to $15.5 billion, and $8.7 billion, respectively,
while Chrysler, which was bought off last year by a private equity
firm, Cerberus, refuses to reveal its financial standing.

It
is no wonder why their lobbyists were spotted schmoozing with members
of Congress at the Democratic and Republican National Conventions,
liquoring up in their plush suites and private parties while they made
their case for direct government loans which, if approved, would likely
add to our federal deficit.

Last December, Congress approved a
$25 billion loan to automakers and their suppliers under the Energy
Independence and Security Act, though it has yet to be funded. That
bill includes a modest requirement for automakers to increase their
average vehicle fuel efficiency to 35 mpg—a benchmark we should have
set decades ago, and would allow the companies to have their way with
virtually no oversight or accountability.

This corporate
Congress cannot be expected to issue serious demands, set tough
conditions, or impose strict rules on the auto companies to ensure
their workers receive fair pay and benefits, and prevent their fat-cat
executives from making off big while leaving their companies in shambles.

Such blatant giveaways have become the norm in
Washington since the corporate stranglehold of Congress and the White
House have smothered the forces seeking worker, consumer and
environmental justice.

But this recent example should not
discount our long history of dealing with corporate failures in more
public and effective ways than just ponying up billions on demand at
any big corporation’s whim.

In 1979 when Chrysler was on the
verge of bankruptcy, the automaker came crying to Congress for a
bailout, which they eventually got, but Congress wasn’t as much of a pushover.

Back then, at least the corporate chieftains were
grilled by Congress and had to agree to give something back for Uncle
Sam bailing them out—good jobs and pensions for their workers, and more
efficient cars to reduce reliance on foreign oil and reduce prices at
the pump.

Now the CEOs don’t even have to leave Detroit and
they get much more money for almost no return commitment to America,
while they outsource jobs and pollute our environment.

During
discussion on a proposed loan bill to bailout Chrysler in October 1979,
Senator William Proxmire (D-WI) who chaired the Senate Banking
Committee issued his opposition to Chrysler’s request and noted: “We
let 7,000 companies fail last year—we didn’t bail them out. Now we are
being told that if a company is big enough… we can’t let it go under.”
He went on to call the proposed deal "a terrible precedent."

Raising
the government’s demand for performance standards, President Carter’s
Treasury Secretary William Miller told Chrysler officials, "it’s going
to be so awful, you’ll wish you never brought the whole thing up."

Today,
we rarely hear such candid opposition to corporate orders shouted at
their congressional servants who lack the fortitude to put serious
restraints and conditions on mismanaged, reckless big business and
their overpaid CEOs seeking tax-payer salvation.

As a part of
the Chrysler deal in the late Seventies, the government took out
preferred stock warrants and after the company turned itself around and
repaid its loan seven years early, the government ended up cashing out,
receiving $400 million in the appreciated stock.

And Congress
made clear to Chrysler that it had specific conditions the company had
to meet before receiving the loan guarantee. It forced the company to
contribute $162,500,000 into an employee stock ownership trust fund
geared to benefit at least 90 percent of its employees, design more
fuel efficient autos to help reduce consumption of foreign oil, and
prohibit wages and benefits from falling below a level set three months
before the legislation was passed.

Today, congressional
actions to grant multi-billion dollar loans to the corporations lack
the reciprocity some in Congress demanded 30 years ago. Before Congress
irresponsibly dips into the public piggy bank, this time it would be
wise to look back at how the government once dealt with Chrysler’s
dilemma, require clear benchmarks to deliver on the next generation of
green collar jobs, improved fuel efficiency and gain a substantial
return on its investment, not just in monetary value, but in the
long-term viability of the domestic motor vehicle fleet.

Congress
needs to call on the auto industry to innovate their way out of this
morass into which they’ve engineered themselves. A sensible
strategy would be to issue stock warrants to the government, like in
the 70s, which would create an incentive for Congress to keep pressure
on the auto industry to improve. Public Congressional hearings are a
must.

Will Congress echo its actions of 30 years ago when it
scrutinized corporate demands, grilled company executives, and imposed
conditions to ensure fair compensation and safety for workers? Or will
Congress continue down the road of corporate servitude, refusing to
stand up for workers, consumers, taxpayers and the environment in its
session-ending stampede and flight away from auto industry accountabilities?